the sales of united states bonds in the years 1894, 1895, and 1896 for the purpose of replenishing the stock of gold in the public treasury have been greatly misunderstood by many honest people, and often deliberately misrepresented.
my conviction that a love of fairness still abides with the masses of our people has encouraged me to give a history of these transactions for the benefit of those who are uninformed or have been misled concerning them. in undertaking this task i shall attempt to avoid unprofitable and tiresome explanation; but i shall, nevertheless, indulge in the recital of details to such an extent as may appear necessary to an easy understanding of the matter in hand. i desire, above all things, to treat the subject in such a way that none who read my 122 narrative will be confused by the use of obscure or technical language.
the government’s gold reserve, as it is usually known, originated under the provision of an act of congress passed january 14, 1875, entitled, “an act to provide for the resumption of specie payments.” this law contemplated the redemption in gold and the retirement of the currency obligations legally known as united states notes, but commonly called greenbacks; and it provided that such notes in excess of $300,000,000 should be redeemed and retired prior to january 1, 1879, and that after that date all the remainder of such notes should be likewise redeemed and canceled. this law further provided that “to enable the secretary of the treasury to prepare and provide for such redemption” he should have the authority “to issue, sell and dispose of” bonds of the united states which were therein particularly specified. of course this authority was given to the secretary of the treasury in order that, by the sale of government bonds, he could accumulate a sufficient gold fund or reserve to meet the demands of the gold redemption provided for, and accomplish the ultimate retirement of all the united states notes in circulation.
in compliance with this act, the sum of about 123 $92,000,000 in gold was realized by the sale of bonds, and about $41,000,000, in addition, was obtained from surplus revenue; and thereupon the contemplated redemption was entered upon. but after the retirement and cancelation of only about $30,000,000 of these notes, and on the thirty-first day of may, 1878, this process was interrupted by the passage of an act forbidding their further retirement or cancelation, and providing that any such notes thereafter redeemed should not be canceled or destroyed, but should be “reissued and paid out again and kept in circulation.” at the time this act was passed the united states notes uncanceled and still outstanding amounted to $346,681,016. it will be observed that though the actual retirement of these notes was prohibited, their redemption in gold was still continued, coupled with the condition that, though thus redeemed, they should be still kept on foot and again put in circulation as a continuing and never-ending obligation of the government, calling for payment in gold—not once alone, but as often as their reissue permitted, and without the least regard to prior so-called redemptions. it will be also observed that this prohibition of cancelation intervened seven months prior to january 1, 1879, the date when the general and unrestricted 124 redemption and retirement of all these outstanding notes was, under the terms of the act of 1875, to commence. at the time when their further cancelation was thus terminated there remained of the gold which had been provided as a reserve for their redemption about $103,000,000. this is the fund which has since then been called the “gold reserve.”
in point of fact, this reserve was thereafter made up of all the net gold held by the government; and its amount at any particular date was ascertained by deducting from the entire stock of gold in the treasury the amounts covered by outstanding gold certificates, which instruments resemble a bank’s certificate of deposit, and are issued by the secretary of the treasury to those making with the government specific deposits of gold, to be returned to the holders of the certificates on demand. of course the gold thus held for certificate-holders is not available for the redemption of united states notes.
in the year 1882 a law was passed by congress which provided that the secretary of the treasury should suspend the issue of these gold certificates “whenever the amount of gold coin and gold bullion in the treasury, reserved for the redemption of united states notes, falls below 125 $100,000,000.” whatever may have been the actual relationship between gold certificates representing gold deposited for their redemption, and the gold kept on hand for the redemption of united states notes, the provision of law just quoted seems to have been accepted as a statutory recognition of the fact that our gold reserve for note redemption should have for its lowest limit this sum of $100,000,000. it is a singular circumstance that until very lately, when this reserve was increased and fixed at $150,000,000, no act of congress actually provided, or in any way expressly stated, what the limits of this gold reserve for redemption purposes should be; and it is no less singular that this provision in the law of 1882 fixed its lowest safe limit as perfectly and authoritatively in the understanding of our people as it could have been done by a distinct legislative requirement. at the time this reserve was created, as well as when the actual cancelation of united states notes after redemption was prohibited, it evidently was thought by those directing our nation’s financial affairs that the sum of $100,000,000 in net gold actually in hand, especially with such additions as might naturally be expected to reach the fund by way of surplus revenue receipts, 126 or otherwise, would constitute a sufficient gold reserve to redeem such of these notes still left outstanding as might be presented, and that the assurance of their gold redemption when presented would keep them largely in circulation. this scheme seemed for a time to be abundantly vindicated by the people’s contentment with the sufficiency of the redemption reserve, and by their willingness to keep in circulating use these united states notes as currency more convenient than gold itself.
another most important condition of mind among the people, however, grew out of, or at least accompanied, their acceptance of the redemptive sufficiency of the gold reserve as constituted. the popular belief became deep-seated and apparently immovable that the reduction of this gold reserve to an amount less than $100,000,000 would, in some way, cause a disastrous situation, and perhaps justify an apprehension concerning our nation’s financial soundness. thus a gold reserve containing at all times at least $100,000,000 came to be regarded by the people with a sort of sentimental solicitude, which, whatever else may be said of it, was certainly something to be reckoned with in making our national financial calculations.
that the plans thus set on foot for the so-called 127 redemption of the united states notes outstanding promised to be adequate and effective is seen in the fact that the gold reserve, starting at the end of june, 1878, with about $103,500,000, never afterward fell as low as $100,000,000 until april, 1893, and that sometimes in its fluctuations during this interval of twenty-five years it amounted to upward of $200,000,000. under conditions then existing popular confidence was well established, the reserve satisfactorily endured the strain of all redemption demands, and united states notes were kept well in circulation as money.
in an evil hour, however, a legislative concession was made to a mischievous and persistent demand for the free and unlimited coinage of silver. this concession was first exhibited in an act of congress passed in 1878, directing the expenditure of not less than $2,000,000 nor more than $4,000,000 each month by the secretary of the treasury in the purchase of silver bullion, and the coinage of such bullion into silver dollars. though this act is not in itself so intimately related to my subject as to require detailed explanation, it was the forerunner of another law of congress which had much to do with creating the financial conditions that necessitated 128 the issuance of government bonds for the reinforcement of the gold reserve.
this law was passed in 1890, and superseded the provision of the law of 1878 directing the purchase and coinage of silver. in lieu of these provisions the secretary of the treasury was thereby directed to purchase silver bullion from time to time in each month to the aggregate amount of 4,500,000 ounces, or as much as might be offered, at the market price, not to exceed, however, a limit therein fixed. it was further provided that there should be issued, in payment of such purchases of silver bullion, treasury notes of the united states in denominations not less than one dollar nor more than $1000; that such notes should be redeemable in coin, and should “be a legal tender in payment of all debts, public and private, except where otherwise expressly stipulated in the contract, and should be receivable for customs, taxes and all public dues”; and that when they were redeemed or paid into the treasury they might be reissued. the secretary of the treasury was directed to coin into silver dollars in each month until the first day of july, 1891, 2,000,000 ounces of the silver so purchased, and thereafter so much as might be necessary to provide for the redemption of the notes issued in payment 129 for the silver from time to time purchased under the act.
i have recited these provisions by way of leading up to the proposition that, under the law of 1890, the burden upon the gold reserve was tremendously enlarged. it will be readily seen that it forced larger monthly purchases of silver than were required under the prior act, and that, instead of providing for silver dollars, which as coins, or certificates of deposit representing such coins, should circulate as silver currency, unredeemable in gold as was done under the act of 1878, it directed that in payment of such purchases a new obligation of the government, redeemable in coin, should be issued and added to our circulating medium.
it is, however, only when we examine the specific provision for the redemption of these notes that we discover in its full extent the harmful relationship of this new device to the integrity of the gold reserve. at its outset the redemption clause of the act courageously and manfully gave to the secretary of the treasury the authority to redeem such notes in gold or silver at his discretion; but in its ending it fell down a pitiful victim of the silver craze. the entire clause is in these words: “that upon demand of the holder of any of the treasury 130 notes herein provided for, the secretary of the treasury shall, under such regulations as he may provide, redeem such notes in gold or silver coin at his discretion, it being the established policy of the united states to maintain the two metals at a parity with each other upon the present legal ratio, or such ratio as may be provided by law.”
according to the legal ratio then existing, which has never been changed, the average intrinsic gold value of a silver dollar as compared with a gold dollar was, during the year 1891, about seventy-six cents, during 1892 a trifle more than sixty-seven cents, and during 1893 about sixty cents.
it is hardly necessary to say that the assertion in the act of “the established policy of the united states to maintain the two metals at a parity” had the effect of transferring the discretion of determining whether these treasury notes should be redeemed in gold or silver, from the secretary of the treasury to the holder of the notes. manifestly, in the face of this assertion of the government’s intention, a demand for gold redemption on the part of the holders of such notes could not be refused, and the acceptance of silver dollars insisted upon, without either subjecting to doubt the good 131 faith and honest intention of the government’s professions, or creating a suspicion of our country’s solvency. the parity between the two metals could not be maintained, but, on the contrary, would be distinctly denied, if the secretary of the treasury persisted in redeeming these notes, against the will of the holders, in dollars of silver instead of gold.
therefore it came to pass that the treasury notes issued for the purchase of silver under the law of 1890 took their place by the side of the united states notes, commonly called greenbacks, as demands against our very moderate and shifting gold reserve.
it should have been plainly apparent to all who had eyes to see that the monetary scheme, thus additionally burdened, was adequate and safe only in smooth financial weather, and was miserably calculated to resist any disturbances in public confidence, or the rough waves of business emergencies. the proof of this was quickly forthcoming.
the new treasury notes made their first appearance as part of our money circulation in august, 1890; and at the close of that month the gold reserve amounted to $185,837,581. during the next month it fell off about $38,000,000, reducing the amount on the last day of september 132 to nearly $148,000,000; and with a few slight spasmodic rallies it continued to decrease until the sale of bonds for its replenishment.
in the latter part of 1892 and the first months of 1893, these treasury notes having, in the meantime, very greatly multiplied, the withdrawals of gold from the treasury through the redemption of these as well as the united states notes strikingly increased; and the fact that by far the larger part of the gold so withdrawn was shipped abroad plainly showed that foreign investors in american securities had grave apprehensions as to our ability to continue to redeem all these notes in gold and thus maintain the integrity and soundness of our financial condition.
i succeeded mr. harrison in the presidency on the fourth day of march, 1893; and on the seventh of that month mr. carlisle became secretary of the treasury. the gold reserve on that day amounted to $100,982,410—only $982,410 in excess of the sum that had come to be generally regarded as indicating the danger line. the retiring secretary of the treasury, appreciating the importance of preventing the fall of the reserve below this limit, had just before his retirement directed the preparation of plates for the engraving of bonds so that 133 he might by their sale obtain gold to reinforce the fund. i have heard him say within the last few years that he expected before the close of his term to resort to bond sales for the purpose of such reinforcement, unless prevented at the last moment by the president’s disapproval. of course it is but natural that any one directing the affairs of the treasury department should be anxious to avoid such an expedient; and secretary foster avoided it, and barely saved the reserve from falling below the $100,000,000 mark during his term, by effecting arrangements, in january and february, 1893, with certain bankers in new york, by which he obtained from them in exchange for united states notes, or on other considerations, something over $8,000,000 in gold, which enabled him to escape the sale of bonds in aid of the reserve.
with the gold reserve lower than it had ever been since its creation in 1878, and showing an excess of less than $1,000,000 above the supposed limit of disaster, and with the demand for gold redemption of government currency obligations giving no sign of abatement, the prospect that greeted the new administration was certainly not reassuring. in our effort to meet the emergency without an issue of bonds secretary 134 carlisle immediately applied to banks in different localities for an exchange with the government of a portion of their holdings of gold coin for other forms of currency. this effort was so far successful that on the 25th of march the gold reserve amounted to over $107,000,000, notwithstanding the fact that considerable withdrawals had been made in the interval. the slight betterment thus secured proved, however, to be only temporary; for under the stress of continued and augmented withdrawals, the gold reserve, on the twenty-second day of april, 1893, for the first time since its establishment, was reduced below the $100,000,000 limit—amounting on that day to about $97,000,000.
though this fall below the minimum theretofore always maintained was not followed by any sudden and distinctly new disaster, it had the effect of accelerating withdrawals of gold. it became apparent that there had intervened a growing apprehension among the masses of our own people concerning the government’s competency to continue gold redemption, with the result that a greatly increased proportion of the amount withdrawn from the gold reserve, instead of going abroad to satisfy the claims of foreigners or as a basis of commercial exchange, 135 was hoarded by our citizens at home as a precaution against possible financial distress. in the meantime, nearly the entire gold receipts in payment of customs and other revenue charges had ceased. to meet this situation strenuous efforts were made by the secretary of the treasury to improve the condition by resorting again to the plan of exchanging for gold other forms of currency, with some success, while in the month of august, 1893, gold revenue receipts were temporarily considerably stimulated. thus a fleeting gleam of hope was given to the dark surroundings.
in these troublous times those charged with the administration of the government’s financial affairs could not fail to recognize in the law of 1890, directing the monthly purchase of silver and the issuance in payment therefor of treasury notes in effect redeemable in gold, a prolific cause of our financial trouble. accordingly, a special session of congress was called to meet on the seventh day of august, 1893, to repeal this law, and thus terminate the creation of further demands upon our already overburdened and feeble gold reserve. the repealing act was quite promptly passed in the house of representatives on the twenty-eighth day of august; but, on account of vexatious 136 opposition in the senate, the repeal was not finally effected until the first day of november, 1893, and then only after there had been added to the act an inopportune repetition of the statement concerning the government’s intention to maintain the parity of both gold and silver coins.
